Explore more insights

revolving credit facility, business loan

What’s the difference between a revolving credit facility and a term loan?

Capitalise Mar 28, 2024

If you’re looking for business finance, there’s a variety of funding products to choose from. Two commonly used finance options are revolving credit facilities and term loans. Both can be effective tools for businesses looking to ease a cash flow gap or invest into the business. In this article, we'll delve into the differences between a revolving credit facility and a term loan, helping your business navigate your choices for funding. 

Revolving credit facilities

A revolving credit facility offers businesses access to a pre-approved amount of funding, which can be drawn upon as needed. Similar to a credit card, businesses have the flexibility to borrow, repay, and borrow again, up to the predetermined credit limit. Interest is only charged on the amount borrowed and for the duration it is outstanding. 

Revolving credit facilities are often used for short term needs, such as managing a cash flow gap, covering emergency expenses, or funding seasonal stock purchases.

Term loans

A term loan provides a lump sum of money upfront, which is repaid over a fixed period. Interest rates are typically fixed and repayments are made in regular, usually monthly, instalments. 

Term loans are commonly used for longer term investments, such as purchasing equipment, or expanding your business operations. Unlike revolving credit facilities, once the funds are repaid, they cannot be borrowed again without applying for a new loan.

Key differences between a revolving credit facility and a term loan


Flexibility vs predictability

Revolving credit facilities offer flexibility in terms of borrowing and repaying funds as needed, providing businesses with quick access to cash when required. On the other hand, term loans provide predictability with a fixed repayment schedule, allowing businesses to budget effectively over the loan term.


Interest cost

With revolving credit facilities, interest is only charged on the amount borrowed and for the duration it remains outstanding. This means businesses can save on interest costs by repaying the borrowed amount sooner. In contrast, term loans accrue interest on the entire loan amount from the outset, regardless of how much is actually used.


Purpose of financing

Revolving credit facilities are more suitable for short term financing needs. Term loans can be better suited for longer term financing needs where a fixed amount of funding is required upfront.

Choosing the right option

When deciding between a revolving credit facility and a term loan, it’s important that you consider your business’ specific needs, cash flow projections, risk tolerance and long term objectives. Ultimately, the choice between the two depends on factors such as the reason you’re looking for funding, the amount needed, and your business's ability to repay.

Applying for finance

Whether you’re looking for a revolving credit facility, a term loan, or another type of business loan, we can help. At Capitalise we work with 100+ lenders to match your business with the right fit funding. Just start a funding search today to get started.

alternative finance
invoice finance
case study
trade finance
contract finance
working capital
startup loans
fashion finance
merchant cash advance
future accountant
product of the month
women in funding
partner of the month
business tips
live session
international women's day
covid19 coronavirus
corporate finance
accounting firm
asset finance
hire purchase
credit score
business funding
business credit score
south africa
small business
business loan
property finance
commercial mortgage
credit imporvement
spring budget 2023
small businesses
spring budget
commercial mortgages
trade debtors
cash flow
truck finance
late payments
lorry finance
building a financial safety net
trade debtor days
bridging loan
credit checks
interest rates
balance sheet
bad debt
company credit checks
debt collection
credit control
check company credit
business loans
instant offer
credit scores
credit review service
company credit check
commercial property
revolving credit facility
line of credit
Follow Us
Sign Up to Receive Updates

Related content

Signup to our newsletter

Have insights about the accounting community sent straight to your inbox. Sign up to our newsletter.